Regulation with Rosie: Reserves

The Charity Commission's Rosie Chapman on dealing with reserves.

It's often the case with reserves that you find yourself looking forward to winning a battle, only to see it reopen on a completely new front.

Visiting a national charity that provides high-quality support and housing services, our charity engagement team was encouraged by the charity's thorough approach to its reserve levels and supporting policy. It was an example of best practice similar to the best case studies we published in last year's report on reserves, Tell It Like It Is.

But the charity wasn't happy. We expected its reserve levels to cover funds needed to repay loans and regular maintenance of properties. But when it made fundraising applications, funders were interpreting its appropriately healthy reserves levels as 'surplus' and, in effect, questioning its funding need.

Charities are doing better on reserves, but consistency among funders clearly lags behind - some say anything over 10 per cent of operating costs is surplus; others interpret acceptable levels as three or six months.

This is incredibly frustrating, but the only way we as the regulator and individual charities can win this battle is with a two-pronged attack.

First, charities' reserves policies must explain that they are planning for both current and future beneficiaries, and be really clear about why the levels are set where they are. A well thought-out reserves policy is still the best weapon against incomprehension from funders and grant makers.

Second, the commission has to continue to get across the key messages about reserves. Grant makers need to consider seriously the rationale of reserves policies before declining funding applications - not least because they could be turning down service providers who epitomise best practice.

• Rosie Chapman is executive director of policy and effectiveness at the commission.

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